Prudential / Capital Requirements in Luxembourg

What Changed

Institutions must establish proportionate strategies, policies, processes, and systems for ESG risk management, covering short-, medium-, and long-term horizons, including transition and physical environmental risks. Develop plans per Article 76(2) CRD with specific timelines, intermediate quantifiable targets, and milestones to address ESG financial risks, consistent with EU objectives (e.g., 55% GHG reduction by 2030, climate neutrality by 2050). Incorporate ESG into internal governance, risk

What You Need To Do

• Map and integrate ESG risks into governance, risk management frameworks, and business strategies, proportionate to scale/risk exposure
• Develop and document ESG risk management plans with quantifiable targets, milestones, timelines, and scenario analyses (broad requirements now; detailed later)
• Conduct assessments of ESG risks in portfolios, including sustainability products, transition finance, and loan origination policies, for SREP submission
• Embed in internal processes per Articles 74, 76, 87a CRD: identify/measure ESG risks (minimum standards), monitor over time horizons, and report to CSSF
• Review and update existing policies/systems for compliance by applicable dates; prepare for CSSF supervisory evaluation of plan robustness

Key Dates

References

• [1] cssf.lu
• [2] cssf.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] reporting4066.rssing.com
• [7] cms.law
• [8] lsfi.lu

What Changed

The circular explicitly states that no substantive changes have been made to the survey process compared to previous quarters. The only modifications are administrative: the reference date (December 31, 2025) and the submission deadline (January 30, 2026). The specifications for data collection, definitions of covered and eligible deposits, and reporting methodologies remain unchanged from prior circulars, particularly Circular CSSF-CPDI 16/02 as amended by Circular CSSF-CPDI 23/35.

What You Need To Do

• *Calculate covered deposits as defined in Article 163 of the 2015 law, including balance and accrued interest (even if not yet due)
• *Report eligible deposits after applying exclusions under Article 172 of the 2015 law, including exclusions for financial institutions and life insurance products
• *Distinguish deposit types by reporting
• Total eligible deposits (field 201)
• Eligible deposits in omnibus accounts, fiduciary accounts, trusts, sub-accounts, and segregated accounts (field 0226)

Key Dates

References

• [1] cssf.lu
• [2] cssf.lu
• [3] cssf.lu
• [4] fgdl.lu
• [5] cssf.lu
• [6] cssf.lu
• [7] cssf.lu
• [8] cssf.lu

What Changed

Repeal of prior circulars: Circular CSSF 19/731 and its amendment via Circular CSSF 19/710 are fully repealed, eliminating the fixed list of annual submission documents. Shift to website-based guidance: The updated list of required documents, affected entity categories, electronic submission channels, and deadlines is now published on the CSSF’s Prudential reporting for credit institutions webpage, including an interactive summary table for determining applicable submissions. Ongoing obligations

What You Need To Do

• Review the CSSF Prudential reporting webpage (https://www
• Update internal reporting processes, templates, and workflows to reference the website instead of the repealed circular
• Confirm ongoing annual submissions via specified electronic channels; test interactive table for applicability to the institution's profile
• Archive references to Circular CSSF 19/731 in policies and train staff on the change

Key Dates

References

• [1] cssf.lu
• [2] bakermckenzie.com
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] cssf.lu
• [7] cssf.lu

What Changed

Diversification and investment limits: Introduces tailored percentage-based thresholds; for funds marketed to unsophisticated retail investors, limits remain at 25% per issuer/UCI/asset, raised to 50% per issuer/UCI/asset or 70% per infrastructure investment for well-informed/professional investor funds, with CSSF derogations possible on justification. Limits apply on assets/commitments basis with look-through for intermediary vehicles. SICAR-specific rules: Confirms risk capital investments (e.

What You Need To Do

• Review and update fund documents (e
• Assess and document compliance with new/relaxed diversification, borrowing, and SICAR investment rules; apply for CSSF derogations where justified
• Ensure risk-spreading in derivatives/collateral and deployment of SICAR cash into eligible assets; confirm look-through for intermediaries
• For retail-marketed funds
• Maintain robust governance/documentation to leverage flexibility; reference CSSF's Compilation for concepts

Key Dates

References

• [1] cssf.lu
• [2] pwc.lu
• [3] aoshearman.com
• [4] maples.com
• [5] cssf.lu
• [6] debevoise.com
• [7] bakermckenzie.com
• [8] cssf.lu

What Changed

Consolidation and Repeals: Repeals CSSF Circulars 02/80, 07/309, 06/241, and Chapters G and I of IML 91/75; renders CSSF 08/356 and Chapter H of IML 91/75 inapplicable to Part II UCIs. Flexible Diversification Rules: Introduces investor-category-based thresholds (e.g., stricter for retail, looser for sophisticated investors); allows CSSF derogations for SIFs/Part II UCIs with justification; applies look-through for intermediary vehicles; harmonizes ramp-up (up to 12 months for liquid strategies,

What You Need To Do

• Review and update offering documents/prospectuses for enhanced transparency on risks, limits, borrowing, liquidity tools (e
• Align fund documentation/terminology with CSSF Compilation of key concepts for consistency in filings and communications
• Disclose ramp-up/wind-down periods, potential derogations, and life extensions clearly; seek CSSF approval for exemptions where justified
• Assess portfolio compliance for new funds/compartments; leverage flexibility for sophisticated investors but maintain robust governance
• No immediate changes required for pre-19 Dec 2025 funds, but proactive alignment recommended to avoid future issues

References

• [1] pwc.lu
• [2] bakermckenzie.com
• [3] ashurst.com
• [4] ogier.com
• [5] aoshearman.com
• [6] arendt.com
• [7] debevoise.com
• [8] cssf.lu

What Changed

The original Circular CSSF 08/356 (2008) transposed UCITS III requirements on eligible techniques like securities lending and repos. The amendment via Circular CSSF 25/901 (issued in 2025) introduces updates to reflect post-Brexit adjustments, enhanced ESG considerations in collateral eligibility, stricter counterparty risk limits for OTC derivatives, and improved transparency in reporting. Key changes include: Expanded collateral rules: Collateral must now include sustainable assets meeting SFD

What You Need To Do

• *Policy Review & Update
• *Risk Management Systems
• *Counterparty Due Diligence
• *Operational Setup
• *Reporting & Disclosure

Key Dates

What Changed

Introduces precise definitions for CRR Article 126a(2) terms, enabling 100% risk weight (instead of 150%) for ADC exposures to residential property if conditions are met: at least 50% of total contracts as pre-sale/pre-lease agreements with substantial cash deposits (e.g., ≥10% of sale price for sales, ≥3x monthly lease for leases), or equivalent financing/sale-lease combos; plus obligor equity ≥25% of completed property value. Mandates "sound standards for lending and credit monitoring" alongsi

What You Need To Do

• Review and classify ADC exposures against EBA-defined criteria (e
• Update internal policies, risk assessment models, and credit approval processes to incorporate "sound lending standards" and EBA specifications, including social housing carve-outs
• Recalculate capital requirements under standardized credit risk approach; report changes via CRR disclosures
• Maintain documentation proving compliance (e
• Institutions must "make every effort to comply" per EBA Regulation Article 16(3)

Key Dates

References

• [1] banking.vision
• [2] finanssivalvonta.fi
• [3] regulationtomorrow.com
• [4] cssf.lu
• [5] jdsupra.com
• [6] cssf.lu
• [7] cssf.lu
• [8] eba.europa.eu

What Changed

Risk Adjustment Updates (Annex 2): Increases weight of 'Return on assets' (ROA) risk indicator from 7.5% to 10%; decreases 'Deposit-size Risk' from 15% to 12.5%; adjusts sliding scale bounds for indicators like leverage ratio (3%-9%), capital coverage ratio (100%-200%), LCR/NSFR (100%-200%), NPL ratio (0%-3%), and others per Table 2, aligning with minimum EBA Guidelines weights totaling 75% plus national flexibility. Formula Component Floor (Annex 1): Introduces a zero floor for Component 1 (max

What You Need To Do

• Review and update internal systems/models for contribution calculations to incorporate new risk weights, bounds (Table 2), zero floor for Component 1, and revised formulas in Annexes 1-2
• Validate data reporting for risk indicators (e
• Prepare for FGDL invoices reflecting compartment-specific rates; monitor covered deposits for surveys (e
• Conduct gap analysis against repealed circulars (20/21, 23/34); update policies for mergers, deposit changes, and gap fillings (Γ_λ)

References

• [1] cssf.lu
• [2] cssf.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cliffordchance.com
• [6] cssf.lu
• [7] cssf.lu
• [8] cssf.lu

What Changed

Modified Contribution Formula: Replaces prior methods (e.g., from Circulars CSSF-CPDI 16/01, 17/06, 20/21) with a new structure: Component 1 proportional to covered deposits growth (Γ_{j,k}) at 0.8% base rate, plus a flat add-on (T_j D_{j-2,k}) for target shortfalls, adjusted by a uniform factor μ per compartment, and multiplied by a new risk adjustment factor (ARW_{j,k}). Risk Adjustment Introduction: ARW is calculated using a weighted score (minimum 75% on EBA core categories, plus 12.5% depos

What You Need To Do

• Data Reporting
• Internal Calculations
• Risk Monitoring
• Systems Update

Key Dates

References

• [1] cssf.lu
• [2] cssf.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] fgdl.lu
• [7] cssf.lu
• [8] cssf.lu

What Changed

Introduces new modules in the revised SAQ to align with supervisory points of focus, building on prior expansions (e.g., credit/counterparty risk, liquidity risk, climate-related risks from CSSF 23/845). Emphasizes REA's independent assessment in the AML/CFT report, requiring exhaustive, transparent evaluations of ML/FT risks across institutions, branches, majority-owned subsidiaries abroad, and tied agents; prohibits vague language (e.g., no "no serious weaknesses" phrasing) and mandates positi

What You Need To Do

• Complete and submit revised SAQ annually, incorporating new modules on supervisory focuses like ML/FT risks and providing detailed data to REA
• Authorized management
• Ensure AML/CFT report details methodologies (e
• Review prior LFR submissions against this update to align with suppressed redundancies and new emphases

Key Dates

References

• [1] cssf.lu
• [2] dlapiper.com
• [3] cssf.lu
• [4] ogier.com
• [5] cssf.lu
• [6] stradalex.lu
• [7] cssf.lu
• [8] cssf.lu

What Changed

The circular introduces a three-component reporting framework that fundamentally alters the compliance landscape: Self-Assessment Questionnaire (SAQ): A digital, annually-completed questionnaire that institutions must prepare directly, covering domains within CSSF and ECB prudential supervision competence Agreed Upon Procedures (AUP) Reports: Reports prepared by approved statutory auditors (réviseurs d'entreprises agréés) on specific compliance areas Separate REA Report on Financial Instruments

What You Need To Do

• *For Credit Institutions
• *Establish SAQ Governance
• *Data Preparation
• *Digital System Access
• *Module Completion

Key Dates

References

• [1] cssf.lu
• [2] pwc.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] dlapiper.com
• [7] stradalex.lu
• [8] cssf.lu

What Changed

This circular updates prior guidance (notably CSSF-CPDI 16/02 as amended by CSSF-CPDI 23/35) by specifying the survey reference date of 30 September 2025 and providing granular reporting fields for eligible deposits (e.g., exclusions for financial institution-like structures and life insurance products), covered deposits capped at €100,000 per person, and breakdowns by natural/legal persons, including shares in omnibus accounts, fiduciaries, trusts, sub-accounts, and segregated accounts. Key fie

What You Need To Do

• For omnibus/trust accounts, obtain and report shares of identifiable entitled persons, apportion by legal status of holder, and ensure fields like 0226 and 0255 reconcile
• Designated management reviews/approves data; transmit accurately to CSSF/CPDI, respecting prior circulars (e
• Exclude non-creditor accounts or those assimilated to financial institutions/life insurance

Key Dates

References

• [1] cssf.lu
• [2] cssf.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] fgdl.lu
• [7] cssf.lu
• [8] cliffordchance.com

What Changed

Introduces data collection for 2026 SRF contributions, conditional on SRB verifying SRF funds fall below 1% of covered deposits in the Banking Union by early 2026. Mandates XBRL submission of DRFs (except restatements up to 2022 in Excel); provides templates in Annexes 3a, 4, 5 (User Guide), and 7a/7b for additional assurances. Additional assurance requirements (e.g., auditor reports or Agreed-Upon Procedures - AUP) apply conditionally to ECB-supervised institutions unless under lump-sum payment

What You Need To Do

• Download and complete DRF using Annexes (e
• For ECB-supervised institutions
• Align internal systems with CSSF templates early; validate data to avoid SRB assumptions under Article 17(1) DR
• Review Annex 1 (SRB kick-off letter), Annex 4 (2026 Guidance), and Annex 6 (ECB list)

Key Dates

References

• [1] cssf.lu
• [2] blog.uit.lu
• [3] cssf.lu
• [4] cssf.lu
• [5] cssf.lu
• [6] cssf.lu